Nation's opening up is continuing despite rules
Recently, this author has been asked frequently by overseas media and businesspeople whether the policy of reform and opening up is being reversed and the country's doors being slammed shut to the rest of the world, now that restrictions are being imposed on speculative overseas capital in the real estate sector; increasingly loud voices are calling for foreign-funded enterprises to be treated as their domestic peers in terms of taxation, no longer enjoying tax privileges; and eyebrows are being raised over foreign players' annexing large numbers of domestic enterprises.
As a matter of fact, China's reform and opening up are developing in depth, and the country is bound to become more open to the outside world.
Now let's have a look at the questions of concern.
To begin with, China is not alone in restricting overseas speculative money from entering the domestic land-property market. Many other countries do so, too. In the Republic of Korea, for example, strict restrictions are imposed on the entry of overseas capital into the real estate market there. This is also the case in France.
In view of this, overseas investors have little reason to say that China's reform and opening up are in retrogression simply because limits are put on overseas speculative capital in this area.
Even if China is exceptional in restricting foreign speculative funds in this respect, it does not necessarily follow that the country's opening up and reform programmes are reversing course.
As one of the basics, housing assures the average citizen's right of residence in a modern civilized society. So in China, the construction, transaction and distribution of housing are foremost in meeting the whole citizenry's basic need for shelter so as to improve the masses' well-being. As a result, investment made in this field is not primarily for the aggrandizement of investors' wealth. It is the Chinese Government's duty to see that scarce land resources are fairly shared by each member of society in the context of the land's public ownership.
The government would be held responsible for dereliction of duty if scarce land resources became the object of speculative investment by overseas players in the face of the stark reality that the housing conditions for average Chinese remain poor. So the Chinese Government is well justified in putting limits on speculation in housing.
Some argue that limiting overseas speculative investment in the land-property market is a kind of discrimination and a short-sighted act on the part of the government.
If there is such a transaction-barrier free market in this world, all dealers enjoy undiscriminating treatment and can, under the unified rules of game, freely make all kinds of deals in the way they choose. But is there such a market in the world today? If there is, why are there so many trade rules between the world's countries? Why is there the World Trade Organization (WTO), by all accounts? The existence of the WTO and all these rules points to the fact that the world is by no means a unified market for totally free trade and that trade barriers do exist between countries in one way or another.
In the face of this reality, the dealer from one country is naturally subject to limitations in various degrees when he sets up operations in the market of another country. So, it is only natural that overseas speculative investment in the domestic real estate market is subject to restrictions. If this is considered discrimination, then could we ever find a place that is free of such discrimination?
Discrimination means that different policies are applied to different people who are in the same conditions. Applying different policies to the Chinese and foreigners, who are in different conditions, on Chinese soil is by no means discrimination.
The restrictions are imposed on overseas speculative capital in the domestic housing market because these investors are eager to reap fat profits. But where does the profit come from? Of course it comes from the domestic residents, who bear the burden of high housing prices. Moreover, once excessive speculation triggers economic problems, this kind of speculative capital from outside would withdraw from the scene as quickly as possible. Domestic residents, however, have to swallow the bitter fruits brought by the economic problems.
In 1997, for example, speculation on real estate helped precipitate the Southeast Asian financial crisis. China could suffer its own crisis if speculative activities in the land-property market go unchecked. In view of this, the government is wise to put restrictions on outside speculative capital.
Some say the restrictive measures will not work out. In the opinion of this author, however, the government does not have to worry about how the overseas dealers will try to steer clear of the restrictions. The only thing the government should do is to tell the overseas players that they must face various kinds of risks now that restrictions have been put in place where the entry of overseas speculative capital into the domestic market is concerned.
At the same time, however, it should be seen that a package of policies is being mapped out so that Chinese capital can flow overseas freely and some sectors are liberalizing limits on the entry of foreign capital indicators of China's reform going ahead in depth.
Overall, the government has formulated some new policies covering foreign capital's access to the domestic market not to reverse the course of the reform and opening up, but to redress wrongs in some sectors. Or in other words, it involves the question of how to protect the national interest and the interests of the vast majority of the people in the course of reform and opening up, instead of reversing the process of reform and opening up.
The author Yi Xianrong is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.